ARR vs MRR: Annual vs Monthly Recurring Revenue

Quick Answer

MRR (Monthly Recurring Revenue) is predictable subscription revenue each month. Basic formula: Active Customers × ARPU (or the sum of all active subscription amounts).

ARR (Annual Recurring Revenue) is that run rate annualized: ARR = MRR × 12. Example: $40,000 MRR = $480,000 ARR.

Neither is the same as total GAAP revenue. For that distinction, see ARR vs Revenue.

  <h2>Side-by-side comparison</h2>
  <table>
    <thead>
      <tr>
        <th>Dimension</th>
        <th>MRR</th>
        <th>ARR</th>
      </tr>
    </thead>
    <tbody>
      <tr><td><strong>Time base</strong></td><td>Monthly</td><td>Annualized (usually ×12)</td></tr>
      <tr><td><strong>Primary audience</strong></td><td>Ops, growth, finance monthly reviews</td><td>Investors, board, fundraising</td></tr>
      <tr><td><strong>Growth reporting</strong></td><td>Month-over-month</td><td>Year-over-year / run-rate</td></tr>
      <tr><td><strong>Granularity</strong></td><td>Higher (new, expansion, churned MRR)</td><td>Often summarized at company level</td></tr>
      <tr><td><strong>Conversion</strong></td><td>Base</td><td>MRR × 12</td></tr>
    </tbody>
  </table>

  <h2>Formulas</h2>
  <div class="not-prose mt-4 mb-6 space-y-3">
    <div class="rounded-lg bg-gradient-to-r from-primary/5 to-primary/[0.02] border border-primary/10 px-5 py-3.5 font-mono text-sm">
      MRR = Active Customers × ARPU
    </div>
    <div class="rounded-lg bg-gradient-to-r from-primary/5 to-primary/[0.02] border border-primary/10 px-5 py-3.5 font-mono text-sm">
      ARR = MRR × 12
    </div>
  </div>
  <p>Many teams also track an MRR bridge: Starting MRR + New + Expansion − Churn − Contraction = Ending MRR. Annualize ending MRR for ARR run rate.</p>

  <h2>When to use each</h2>
  <p><strong>Use MRR when:</strong> reviewing weekly/monthly growth, diagnosing churn, modeling expansion, or planning capacity.</p>
  <p><strong>Use ARR when:</strong> sizing the company for investors, comparing YoY scale, or quoting “we are a $XM ARR business.”</p>

  <h2>Common mistakes</h2>
  <ul>
    <li>Including one-time professional services in MRR/ARR</li>
    <li>Reporting MoM growth on ARR without converting (divide ARR by 12 first, or use YoY ARR)</li>
    <li>Treating ARR as cash collected this year (billing terms differ)</li>
    <li>Confusing ARR with total revenue (see <a href="/comparisons/arr-vs-revenue/">ARR vs Revenue</a>)</li>
  </ul>

  <h2>Related metrics</h2>
  <p>Pair recurring revenue with <a href="/guides/what-is-nrr/">NRR / NDR</a> for retention quality, and with LTV and CAC for unit economics.</p>

  <h2>Sources</h2>
  <p>Definitions follow standard SaaS practice. See our <a href="/disclaimer/">disclaimer</a>.</p>